The automaker's future may depend as much on selling a service as a product, a lesson that helped save IBM from extinction two decades ago
Disappointingly for anyone with hopes for the future of General Motors (GM), the restructuring plan submitted by the automaker to the U.S. Treasury on Feb. 17 offers little in the way of a long-term comeback strategy. It's all about cost-cutting, federal financing, and making gas engines more efficient.
Management's vision of the future is revealed in a table deep in the report that lists short-, medium-, and long-term investments in product development. A total of 18 major projects appear in this table. All but three deal with gasoline power, including "strong" hybrids. Or, simply put, GM offers us more of the same strategies that resulted in the $9.6 billion fourth-quarter loss reported Feb. 26.
What more should we expect? The typical fate of corporate behemoths that flounder is either death or permanent eclipse, and perhaps GM's fate will be no different. Still, the recent past offers one rare exception that GM would do well to emulate.
Gerstner's IBM Reinvention
Like GM, this company was in its heyday an icon of American manufacturing leadership. Like GM, it faced dire threats to its very existence. Its reinvention, without the benefit of a federal bailout, was so impressive that it continues to perform strongly in the current weak economy, even as many of its tech rivals struggle.
The company, of course, is IBM (IBM).
When Lou Gerstner became CEO in early 1993, prevailing opinion was that the company could only survive by breaking itself up. As is well known, Gerstner rejected this strategy, recognizing that IBM was uniquely equipped to provide the comprehensive array of services in information technology that would be desperately needed by major companies around the world.
Thanks to a group of visionary IBM scientists and engineers, Gerstner grasped the power of the Internet before most other tech companies did. And ever the consummate salesman, he undertook a series of half-day sessions with CEOs of major companies, seeding them with ideas to transform their businesses via this exciting if untested new technology. Naturally, the CEOs all wanted IBM and its world-class research teams to help them realize those ideas.
The IBM that Gerstner inherited had a market share so high that it was required it to spend 11¢ more than its competitors to produce a dollar of revenue. By the end of the decade, Gerstner had transformed IBM from a product-driven to a service-driven company with a much lower but more realistic market share. Investors loved it: From about $29 billion when Gerstner became CEO, the company's market cap swelled to more than $148 billion.
Hope in the Volt
GM's restructuring plan makes clear that it understands well enough the value in reducing its market share. Still, it took a lot more than cutbacks for IBM to make a sustainable recovery: It took reinvention—a recognition that the company was far better off in defining its mission broadly, in terms of information management, than narrowly, in terms of computer manufacture. What would a comparable broadening entail at GM?
According to a number of press accounts, GM's great hope for the future is the Chevrolet Volt, a plug-in vehicle that can get up to 40 miles on a single battery charge. From the evidence of this month's report to Treasury, GM may not view the Volt in quite the way those accounts suggest: The car is mentioned exactly nine times in the 117-page document, and, although the report indicates the Volt will be launched in late 2010, the company does not provide any estimate of production volume.
Why the muted enthusiasm? Battery-charging stations. This is the problem that Henry Ford faced in 1914, when gasoline filling stations were few and far between. Ford's solution was to sell his Model T at such a low price that consumers were willing to buy gas by the gallon in grocery stores. It took 20 years for a third-party (oil companies) to build filling stations by the thousands to meet the demand for gasoline generated by Model Ts.
GM doesn't have 20 years to turn itself around, of course, but it may not need that many. Recently an Israeli company called A Better Place has captured a lot of attention with a visionary strategy of building a network of quick-charge stations for city travel and battery-changing stations for longer trips. The company has already embarked on prototype stations in Israel, Denmark, Japan, and other places and has signed a deal with the affiliated automobile companies Renault (RENA.PA) and Nissan Motor (NSANY).
To date, GM has shown no interest in the concept, a response that led New York Times columnist Thomas Friedman to lament that bailing out Detroit struck him as similar to "pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet."
The Need for Electric-Auto Infrastructure
GM mentions in its report to Treasury that it is increasing its investment in electric-vehicle battery development, with more than 1,000 engineers and technicians directly involved. Dreams of breakthroughs in battery capacity are nothing new, of course: A century ago, Thomas Edison tried to develop a vehicular battery that could be charged in a few minutes and fit inside a suitcase. GM's thousand engineers and technicians notwithstanding, a major advance in something as thoroughly familiar as electrochemistry is likely to prove as elusive today as it was for America's greatest inventor. Hopefully, GM does not envision its future in electric automobiles as wholly dependent on spectacular breakthroughs in battery performance.
Meanwhile, GM's rejection to date of any major role for itself in building and running something far less elusive—the infrastructure for mass electric-automobile travel—is all too reminiscent of IBM's brush with death. Back then, IBM refused to give up the one thing that was dragging it down—a mindset stuck on products; then Gerstner came along, and IBM embarked in a big way on selling services by the hour.
The auto industry is at a crossroads today similar to the one the tech sector confronted in the early days of the Web. One suspects that GM's future will depend on its ability to sell Volts not only in showrooms but by the mile. Hopefully, it will come to realize this before the patience of the American taxpayer runs out.